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Sony, Toshiba, Hitachi Unload LCD Units to Japan Government-Backed Fund

Sony Corp. (6758), Toshiba Corp. (6502) and Hitachi Ltd. (6501) agreed to divest their liquid-crystal display businesses to a government-backed fund amid mounting competition from South Korean and Taiwanese producers.

The companies will spin off and merge the units to create Japan Display K.K. next year, the three Tokyo-based electronics makers said today. The government-backed Innovation Network Corp. of Japan will own 70 percent of the venture after a 200 billion yen ($2.6 billion) investment, while Sony, Toshiba and Hitachi will split the remaining 30 percent, they said.

The deal may create the world’s biggest maker of LCDs for mobile phones and cameras as Japanese companies struggle to compete against Korea’s Samsung Electronics Co. and Taiwan’s Chimei Innolux Corp. (3481) in the larger market for television displays. Sony and Hitachi are unprofitable in LCDs, while Toshiba ended losses at its display division last fiscal year.

“For each of the three companies, capital spending would continue to be a burden and it’s hard for them to stay competitive on their own,” said Yuichi Ishida, a Tokyo-based analyst at Mizuho Investors Securities Co. “It’s probably a plan led by the government trying to boost presence of Japanese manufacturers in the global market.”

Sony, Japan’s biggest exporter of consumer electronics, fell 1.8 percent to close at 1,665 yen in Tokyo trading before the announcement, widening this year’s loss to 43 percent. Toshiba dropped 2.4 percent, while Hitachi gained 0.5 percent.

New Management

James Chung, a Seoul-based spokesman for Samsung and Son Young Jun, a Seoul-based spokesman for LG Display Co., declined to comment on how the Korean companies view the Japanese government’s involvement in the venture.

Chimei Innolux’s relationship with the three Japanese companies will stay “quite strong” as they share cross- licensing and foundry agreements, said spokesman Eddie Chen. AU Optronics Corp. (2409), Taiwan’s second-largest maker of liquid-crystal displays, “will still be able to maintain our competitive edge,” the Hsinchu-based company said in an e-mailed response to questions.

Japan Display will use the money from INCJ to build new production lines and hire external managers, the companies said in a statement. Sony, Toshiba and Hitachi will appoint directors on the venture’s board, it said.

Future IPO

The venture plans to sell shares in an initial public offering by the year ending March 2016, with a target to boost sales to at least 750 billion yen for that year from an estimated 570 billion yen in the year ending March 2012, according to INCJ.

Approvals from antitrust regulators will be sought later, said Kimikazu Noumi, President and CEO of INCJ.

“We don’t think there will be a big issue getting approvals,” he told reporters in Tokyo today.

Sony, Toshiba and Hitachi accounted for a combined 22 percent of the market for small- and medium-sized LCDs --defined as screens measuring up to nine inches -- last year, according to estimates by researcher DisplaySearch. By comparison, Sharp Corp.’s share was 15 percent, followed by South Korea’s Samsung Group and Taiwan’s Chimei with 12 percent each, according to the research firm.

“Unless we have a top market share, we can’t cope flexibly with set-makers’ requests,” Toshiba President Norio Sasaki told reporters in Tokyo. “The scale of our business is too small to grow continuously, or to remain competitive.”

Sony LCDs

Sales in the industry will probably jump 22 percent to $24 billion this year following a 16 percent gain in 2010, according to DisplaySearch estimates.

For Sony, spinning off the business that it acquired from Seiko Epson Corp. (6724) in 2009 would free up resources to focus more on other electronics components such as image sensors used in digital cameras and mobile phones. The company is spending 140 billion yen to double its production capacity of such sensors.

Sony’s LCD unit, based in Aichi prefecture, central Japan, has 2,200 employees and three production bases, including one in China, according to Jin Tomihari, a Sony spokesman. The unit posted an operating loss of 5.5 billion yen and generated 141.2 billion yen in revenue in the year ended March 31, according to the company’s website.

Hitachi’s LCD unit posted sales of 150.8 billion yen and an operation loss of 2.5 billion yen in the year ended March, according to Atsushi Konno, a Hitachi spokesman.

Sharp Competition

Toshiba recorded an operating profit of 10.1 billion yen at its LCD division last year, compared with a loss of 36 billion yen in the previous year. Sales of LCDs used in mobile devices and car navigation systems at Toshiba rose 4 percent to 209.6 billion yen.

Osaka-based Sharp, Japan’s largest maker of LCDs, is transforming its TV-panel plant in Kameyama city, central Japan, to start making smaller screens from October, the company said in June. Sharp is expecting profit from LCDs to jump 87 percent to 32 billion yen this fiscal year as growing demand for smaller panels used in mobile devices makes up for slower sales of large-sized panels used in televisions.

Sony, the world’s third-largest TV maker, has said it’s facing an eighth consecutive year of losses at the TV business.

Samsung, the world’s largest maker of flat-screen panels, is seeking to slim down its display unit by combining teams and reducing the number of executives, effective from tomorrow, the Suwon, South Korea-based company said in a statement today.

The restructuring is aimed at “boosting the LCD unit’s competitiveness and stabilizing the organization,” Samsung said. The company replaced the head of the unprofitable division on July 1.

The company today denied a report in the Korea Economic Daily that it plans to cut output of TV panels by 80 percent by the end of this year to divert resources to smaller panels for tablets and notebook PCs.

Investment in the panel venture will be the INCJ fund’s biggest since it was formed in July 2009 with a goal of spurring new business growth, the Tokyo-based company said in a statement. INCJ can invest as much as 900 billion yen with support from the government and private companies.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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